Buying a second home is the ultimate upgrade. If you’ve reached that stage in life where you’re ready to make a second home purchase, congratulations! The fact that you are moving in this direction is fantastic. Whether you are looking to buy your second home for rental income or as a vacation property, there are some challenges that you’ll need to overcome along the way. If you’re like most people, the biggest hurdle will be saving the money.
Fortunately, there are a few tips that can make saving for your second home much easier. We’ll look at how to evaluate your finances, craft a realistic budget, establish a realistic timeline, analyze the hidden costs, and use equity to finance your second home.
Tips to Save Money for a Second Home
The fact that you have already gone through the extensive process of buying your first home means that you have already passed the biggest barrier in terms of qualifying for a second home purchase. That said, owning one home is expensive and two – well, that’s twice as expensive. Saving up for the down payment alone can be difficult for some. The following tips should help make your second home purchase process much easier.
Evaluate Your Current Finances
When you’re deciding if saving for a second home is the right decision for you, start by evaluating your finances. If you can already afford the down payment, then the process is a lot easier. But if you need to save money you should set up a home buying budget.
Look carefully at how much money is coming in from all sources each month, and then determine how much money you are presently spending every month. In order to save, you first need to make sure that you have more income than monthly expenditure; if you do, then you can move on to the next step, but if you are spending more than you make each month, you’ll first need to make some lifestyle adjustments to free up an amount that you can save towards your second home.
Create Your Budget
The next step is to create a detailed, itemized savings budget so that you’ll have a framework for your second home savings plan. Determine how much money you will need for a down payment, and then figure out how much money you’ll be able to save each month towards that goal.
Set and adhere to a strict personal budget so that you can maximize your savings and buy your second home sooner; this may mean temporarily cutting back on some luxuries, but it will all pay off when you get the keys to your second home and achieve financial freedom.
Establish Your Home-Buying Timeline
If you want to save for a second home, it’s important to be aware of the timeline involved. Working with guesstimates is no way to attain your goals; you need a concrete plan that you can easily keep track of to monitor your progress in real-time. Fortunately, there is an easy way to determine how long it will take to save up the down payment for your second home; this very basic equation will give you the exact timeline:
- First, determine the cost of the down payment (X)
- Next, figure out exactly how much you can afford to save each month (Y)
- Then, simply divide X by Y, and you’ll know how many months you’ll need to save (Z)
In many cases, by paying careful attention to your day-to-day finances and investing your savings conservatively, you will be able to shave months or possibly even years off of your expected timeline, which can mean having the money for your second home much sooner rather than later.
Consider Hidden Costs
Depending on how you plan to purchase your second home, it’s important to be aware of any hidden costs that may be associated with the purchase. It’s not uncommon to get an unpleasant surprise after you sign on the dotted line for your second home.
There are too many potential scenarios to go into much detail about every possible hidden fee that you might encounter when buying your second home, but almost all such fees can be avoided if you follow these four very sound pieces of advice.
Do Your Homework
All of these tips can really be summed up in these three words: do your homework. By researching the market, reading the fine print, and steering clear of any fly-by-night, popup lenders you’ll be able to remove most of the guesswork from the process and ensure that you get a transparent deal.
Whether it’s your first, second, or tenth, buying a home is a major financial commitment, and it’s imperative that you take your time and really consider the many different products, lenders, terms, and rates on offer very carefully. Make sure that you weigh the pros and cons of each option so that when the time comes to buy, you’ll be able to make the best financial decision for you and your family.
Research the Lender
Pay particular attention to the lender you are considering for your second home. Avoid any lenders that just appeared on the scene and stick with trusted, credible lenders that have a good reputation for providing fast and easy second home financing options. Look on the company website and read all of the fine print; this is incredibly tedious, but buying a home is a substantial purchase, and it’s always better to be safe than sorry.
Avoid Predatory Lenders
Again, it all comes back to doing your homework. Houses are expensive, and when you are saving up for your second home, there will be no shortage of people waiting to part you from your hard-earned money.
Always be cautious and very skeptical when businesses offer you rates or deals that seem too good to be true because in most cases, they are usually a scam of one sort or another, and never agree to anything before speaking with a mortgage expert that you trust and can rely on.
One great tip is to look online for reviews so that you can see which lenders have helped people buy a second home and which lenders duped people with costly hidden fees, exorbitant interest rates, or outright fraud.
Consult a Mortgage Expert
Anytime you consider buying a new property, your first phone call should be to a trusted mortgage expert who can guide you through the entire process and explain all of the costs, hidden fees, and documents involved. By consulting with an expert, you’ll save yourself a lot of time, and you’ll also save money in the long run as you will avoid the many costly traps and pitfalls that homebuyers can fall into.
Use Equity to Fund Your Second Home
Now, because you already own one residence, you may be able to use equity to fund the down payment for a second home. There are many factors involved with equity, but the general principle is relatively straightforward; if your current residence has appreciated in value by more than the cost of the down payment for the second house, you should be able to apply your equity towards the down payment.
This strategy is the easiest to accomplish when you apply with the same lender you have your current mortgage with or with the lender you used when paying your first home off. That said, it may be possible to use the equity towards the down payment even if you go with another lender; just be careful to avoid any lenders with high rates, fixed-terms, or if you notice any other red flags. You should only choose the services of a well-trusted lender that has a great reputation and has been in business for long enough to prove themselves stable, trustworthy, and reliable.
Seek Professional Advice from Mortgage Experts
Saving for your second home is not always easy, but with some patience and a bit of due diligence, you will be able to achieve your goal sooner than you probably imagine. Remember, if you want to make sure that you succeed with your plan, then evaluate your finances, create a budget, establish a realistic timeline, consider any hidden costs that may exist, and think about using equity to fund your second home.
When the time comes, and you are ready to move forward with purchasing a second home, be sure to seek professional advice from a mortgage expert like A and N Mortgage. As a mortgage banker, A and N offers a wealth of different loan programs. And because everything is managed under one roof, from application to funding, the loan process is streamlined and straightforward. If you’re looking for a better mortgage experience for your second home purchase contact A and N today! They will be able to facilitate everything on your behalf and help you reach the finish line.
A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.
